Muskrat Falls Project-A Critical Review Energy Economics and Policy Engineering 9853

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Muskrat Falls Project-A Critical Review

Energy Economics and Policy Engineering 9853

Student Name:

Hashem Elsaraf (201992214)

Course Instructor:

Dr. Wade Locke

In this term paper, IEEE format was followed. This includes referencing style and formatting rules (font,

line spacing, heading format, orientation, justification, table format and caption format). A formatting

template was obtained from IEEE which can be submitted upon request.

ii Table of Contents

Abstract. ... 1

I. Problem Statement... 1

II. Introduction ... 2

A. Overview ... 2

B. Background information ... 4

C. How did Nalcor determine the project cost? ... 5

D. The screening process ... 6

E. Holyrood thermal generating station ... 8

F. Positive impacts of Muskrat Falls ... 9

G. Impact of COVID-19 Pandemic ... 9

III. Environmental Perspective ... 9

A. Methyl mercury release ... 9

B. Lifecycle assessment ... 12

C. Potential for landslides ... 12

D. Effects on adjacent structures... 13

E. PESTLE analysis ... 14

IV. Economic Perspective ... 19

A. Cost and schedule overruns ... 19

B. Hiding Hand ... 20

Direct benefits ... 20

Indirect impacts on the employment market ... 21

Direct costs ... 22

Environmental impacts ... 23

C. Energy pricing ... 23

D. International market for Canadian electricity ... 25

E. Possibility of electricity rate increase ... 26

F. Impact of declining oil prices ... 28

V. Engineering Perspective ... 29

A. Wind energy potential in Newfoundland and Labrador ... 29

B. Test location ... 31

Mathcad calculation... 32

Homer simulation ... 38

Homer and Mathcad comparison ... 40

Wind farm at Test location ... 40

C. Wind site selection ... 41

Existing Wind farms ... 41

Methodology in Wind site selection ... 42

Wind Sites Selection... 44

D. Wind turbine selection ... 47

Wind turbines used in Canada ... 47

Wind turbines used internationally ... 48

E. Parametric study ... 50

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F. Case studies ... 53

G. Selected system ... 54

Inverter ... 56

H. Finalized system ... 57

I. Farm layout and wake effect ... 58

J. Wind system conclusion ... 62

K. Gravity energy storage ... 63

Overview ... 63

System sizing ... 64

Cost ... 66

VI. Conclusion ... 67

References ... 69

List of Figures Fig. 1. Muskrat Falls Project ... 2

Fig. 2. Nalcor's Load Forecast ... 4

Fig. 3. Holyrood Station Schematic ... 8

Fig. 4. MeHg in top 20 food sources affected by flooding consumed by nearby Inuit populations... 11

Fig. 5.Aerial view of Muskrat Falls ... 13

Fig. 6. a) reservoir before and after flooding, b) surrounding geology ... 14

Fig. 7. Canada's International Electricity Market ... 25

Fig. 8. Provincial Government Price Stabilization Plan ... 27

Fig. 9. U.S. Historical Oil (WTI) Prices ... 28

Fig. 10. Energy demand and renewable energy supply in NL. ... 30

Fig. 11. Wind energy distribution across Canadian provinces………..30

Fig. 12. Wind speed time series for every hour in 2019 ... 32

Fig. 13. Weibull PDF fitted to the wind speed data ... 33

Fig. 14. Values of c and k for test location………33

Fig. 15. Power curve of Vestas 164m ... 34

Fig. 16. Weibull distribution of test location versus reference. ... 35

Fig. 17. Weibull distribution for various c values and k = 2……….34

Fig. 18. Given-find function for mode velocity in Mathcad worksheet ... 36

Fig. 19. Energy density from test location vs reference ... 37

Fig. 20. Mathcad continuous piece wise function………..36

Fig. 21. System in Homer ... 38

Fig. 22. Average monthly electric production. ... 40

Fig. 23. Geographical location of St Lawrence Wind farm, NL ... 42

Fig. 24. Schematic View of Fermeuse wind farm, NL ... 42

Fig. 25. Selected region in Portugal Cove South ... 44

Fig. 26. Mean wind speed for varying heights………...44

Fig. 27. Selected region in the Bonavista ... 45

Fig. 28. Mean wind speed for varying heights. (Bonavista)………..44

Fig. 29. Selected region in Grand Bank ... 45

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Fig. 30. Mean wind speed for varying heights. (Grand Banks) ……….44

Fig. 31. A view of the selected region in Saint Bride’s region ... 46

Fig. 32. Mean wind speed for varying heights (Saint bride’s) ………..45

Fig. 33. Power curves from 5 selected turbines [99]-[103] combined and compared. ... 50

Fig. 34. Curves regarding selected system. ... 56

Fig. 35. Final system curves. a) System in HOMER. b) Cash flow. c) Monthly energy production. ... Error! Bookmark not defined. Fig. 36. Turbine layout of lower range (2D and 8D) ... 59

Fig. 37. Turbine layout of upper range (4D and 12D) ... 60

Fig. 38. Energy deficit/surplus integration ... 66 List of Tables

TABLE I SUMMARY OF FINDINGS FROM REFERENCE ... Error! Bookmark not defined.

TABLE II HYDRO-ELECTRIC DAM PROJECTS COMPARED TO ENERGY PROJECTS ... Error!

Bookmark not defined.

TABLE III VESTAS164 TURBINE CHARACTERISTICS ... Error! Bookmark not defined.

TABLE IV INPUT PARAMETERS ... Error! Bookmark not defined.

TABLE V OUTPUT SUMMARY ... Error! Bookmark not defined.

TABLE VI HOMER RESULTS SUMMARY FOR 1 TURBINE ... Error! Bookmark not defined.

TABLE VII HOMER RESULTS SUMMARY FOR 135 TURBINES ... Error! Bookmark not defined.

Table VIII PORTUGAL CAVE SOUTH ... Error! Bookmark not defined.

TABLE IX.BONAVISTA ... Error! Bookmark not defined.

TABLE X GRAND BANKS ... Error! Bookmark not defined.

Table XI SAINT BRIDE’S ... Error! Bookmark not defined.

TABLE XII LISTS OF UTILITY SCALE WIND FARM ACROSS CANADAError! Bookmark not defined.

TABLE XIII EXISTING WIND FARMS USING THE SELECTED TURBINES.Error! Bookmark not defined.

TABLE XIV TURBINE CHARACTERISTICS ... Error! Bookmark not defined.

TABLE XV SITE CHARACTERISTICS ... Error! Bookmark not defined.

TABLE XVI PARAMETRIC STUDY ... Error! Bookmark not defined.

Table XVII FINAL SYSTEM METRICS ... Error! Bookmark not defined.

TABLE XVIII SIMULATION RESULTS OF LOWER RANGE (2D AND 8D)Error! Bookmark not defined.

TABLE XIX SIMULATION RESULTS OF UPPER RANGE (4D AND 12D)Error! Bookmark not defined.

List of abbreviations

DG2 DG3 MHI CPW NL MUN

Decision Gate 2 Decision Gate 3

Manitoba Hydro International Cumulative Present Worth Newfoundland and Labrador

Memorial University of Newfoundland

CDM HVDC MeHg EPA LCA CBA

Conservation and Demand Management High Voltage Direct Current

Methyl Mercury (chemical symbol) U.S. Environment Protection Agency life cycle assessments

Cost benefit analysis

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LNG O&M NYISO DOE WTI

Liquefied Natural Gas Operation and Maintenance

The New York Independent System Operator U.S. Department of Energy

West Texas Intermediate

GDP GHG PJM ISO-NE PDF

Gross domestic product Green House Gases

Pennsylvania-New Jersey-Maryland Interconnection

Independent System Operator of New England

Probability Density Function

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Abstract—The Muskrat falls hydroelectric project in Newfoundland and Labrador is an 824 MW hydroelectric facility and over 1600 km of transmission lines across the province including a maritime link between Newfoundland and Nova Scotia. It has important benefits for the province such as connecting it to the North American electricity market, increasing employment for local labor, CO 2

emissions reduction, and making the province’s electricity 98% renewable. However, the project has faced many issues such as economic, temporal, political and environmental problems. In this article, a study is presented which highlights the different aspects of this project and the process involved in its assessment and implementation. Environmental and economic issues related to Methyl mercury, impact of COVID -19 pandemic, impact of oil prices and the contribution of the hiding hand principle to the project’s development were addressed. From an engineering perspective and to expand on the wind alternative, original work designing a wind project of similar generation capacity to Muskrat Falls (4.9 TWh) is presented. Using a multifactorial wind farm sitting approach, four sites for possible wind energy deployment were selected which are: Portugal Cove, Bonavista, Grand Banks and Saint Bride’s. Through a review of the most prominent wind farms inside and outside Canada, five types of wind turbines were selected for the study which are GE-2.5 XL, Vestas 164, Enercon E-126, GE 1.5s and Siemens SWT 3.6. A parametric study of 36 systems was then conducted to test each turbine model at each location at different hub heights. The study included both financial (LCOE, Profit) and area (Energy density, Profit/Area) considerations. After careful comparison, Bonavista wind site with Enercon-126 wind turbine at 135 m hub height was justifiably the best system. The system is then further developed by adding ACS880 inverter from ABB (for power conditioning and HVDC transmission) and reporting on the final system values (4.83 TWh energy production, 884 million USD profit and 3.06 million tons of CO 2 emissions curtailed per year). Finally, a gravity energy storage system is roughly calculated in order to make the wind farm as dispatchable as Muskrat Falls which increased the system cost to 4.33 billion CAD.

Index Terms—Muskrat Falls, Hydroelectric Projects, Methyl Mercury, Nalcor Energy, Newfoundland and Labrador, Wind Energy, Gravity Energy Storage.

I. Problem Statement

This study discusses the beneficial and controversial aspects of the Muskrat Falls project from an

environmental, political, economic, and engineering perspective in order to answer the question “Was

Muskrat Falls a mistake?”. While the study tried to do both sides justice, the substantial portion of the

literature points to the answer to the posed question being yes and so striking a perfect balance between

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benefits and issues would be misleading. In the second part of the study, a wind farm was proposed and designed and large scale energy storage in the form of gravity storage was also included in order to examine the possibility of the wind alternative not being dismissed if Nalcor had waited till 2020 to enact major capacity addition.

II. Introduction A. Overview

Fig. 1. Muskrat Falls Project

The Muskrat Falls (MF) project is one of two sites (the other being Gull Island) which combined as the

lower Churchill project will provide 3000 MW of hydroelectricity to Newfoundland and Labrador. The

project is developed by Newfoundland and Labrador's Nalcor Energy and Halifax’s Emera who have signed

a deal for 6.2 billion dollars in 2010 with construction commencing in 2013 [1]. The first phase of the project

Muskrat Falls, includes the development of an 824 MW hydroelectric facility (with an expected energy

output of 4.9 TWh/yr) and over 1600 km of transmission lines across the province including a maritime

480km HVDC link between Newfoundland and Nova Scotia according to Nalcor’s website. The power

produced by the project is to be delivered to Nalcor’s subsidiary and public utility company Newfoundland

and Labrador Hydro to sell. Surplus power is to be exported to Nova Scotia [2]. The original agreement

involved Emera investing $1.8 billion, $1.2 billion of which goes to fund the undersea transmission cable

between the two provinces in exchange for 20% (1 TWh) of Muskrat Falls annual generation for 35 years

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(40% will go to NL’s load and 40% is to be exported). In return, NL would get access to said cable thus effectively ending its electricity isolation and connecting it to the North American grid. This scenario was dubbed “Interconnected Island” [48, 117].

Muskrat Falls project planning started in the mid 1960s (which was a few years before the upper Churchill project started generation in 1971) and continued till 2012 when the project was sanctioned by Newfoundland’s government. The Upper Churchill hydroelectric facility is a 5428 MW project that Newfoundland only receives a small percentage of its power and benefits with the main share of power and benefits going to Hydro Quebec. The province must wait till 2041 when the project full ownership will revert back to Newfoundland. In figure 1 we observe a spillway structure is included between the North dam and the powerhouse block. The powerhouse is designed with four turbine-generator units using a concrete spiral case arrangement. A switchyard will be located at the MF site for interconnection of the power station with the transmission system. The system is made up of a 345 kV switchyard at the Muskrat Falls station, as well as a 345 – 138 kV substation located about five kilometers from the station [117].

Nalcor promised the following benefits of the project [2]

• 98% sustainable long-term renewable power

• Reduction in Greenhouse gas (GHG) emissions from electricity production in the province

• Economic diversification

• Ability to sell excess power to the north American market

However, as of 2019 the project has exceeded the planned budget by $6 billion dollars and is two years late with projected cost overruns skyrocketing from 7.4 billion Canadian dollars to 12.7 billion. This led the CEO of Nalcor Stan Marshall to admit the project was a mistake [3].

During the sanction phase (Dec 17 ^th 2012), Muskrat Falls, which had a $6.2 billion estimated cost plus

$1.2 billion financing cost, was selected from a group of potential projects as the least-cost option which was inaccurate due to the Decision Gate 3 (DG3) estimate being unrepresentative. The Budget was revised several times and is currently in excess of $10.1 billion plus $2.6 billion financing cost [12].

On September the 22 ^nd 2020, first power (successfully synced to the grid) flew out of Muskrat Falls into

the Labrador grid. However, Nalcor said the project will not become operational until further testing is

conducted [39].

P a g e 4 | 68 B. Background information

The reason Muskrat Falls project was undertaken was due to a load forecast done by Nalcor Energy in 2010 which stated that new electrical power generation projects are necessary in Newfoundland due to the demand for electricity growing steadily to a point where it will surpass the existing supply. Nalcor reached this conclusion by creating a load forecasting model which resulted in them believing the Newfoundland would experience an energy deficit by 2021 if no new generation capacity were added [10].

Fig. 2. Nalcor's Load Forecast

Nalcor then conducted a feasibility study to compare between four potential projects (which was later

examined and verified by Manitoba Hydro International (MHI) [59]). Firstly, the Gull Island project

involving the construction of 2.25 GW (11.9 TWh) hydroelectric facilities on Gull Island and the

development of a transmission link from Labrador to Newfoundland. Secondly, the Muskrat Falls project

involving the construction of an 824 MW hydroelectric plant and transmission link from Labrador to

Newfoundland. Thirdly, the Isolated Island project involving the installation of small electricity generating

fossil fuel-based power systems in Newfoundland, new wind developments, small on island hydro projects

and the upgrade of Holyrood power station or the use of wind energy coupled with battery storage (to replace

thermal generation). Lastly, the final option was to import energy from Quebec or New England [12]. Natural

gas was also considered but dismissed to supply and price volatility according to Ziff energy [59].

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In the sanction phase (phase 1), Gull Island and energy import projects were excluded. For Gull island there was an inability to obtain transmission access to Quebec markets which would result in excessive electricity supply that exceeds the province’s demand and leads to the actual unit cost of Gull Island being greater than that of Muskrat Falls. Energy import option was excluded since importing electricity from other provinces introduces price volatility depending on the fuel used for generation and low energy security as the power would come from external suppliers [11].

In phase 2 of the screening process, cumulative present worth (CPW) was deployed to evaluate the remaining options to determine the present value of capital, fuel, operation and maintenance (O&M) future costs and power purchase agreements. CPW analysis is the global standard for comparing public development project alternatives. Muskrat Falls had a CPW that was $2.2 billion less than that of Isolated Island and so was the preferred project. Future oil prices, load growth, wind power and more variables were included in the CPW sensitivity analysis making its results robust [11]. Manitoba Hydro International reviewed Nalcor’s proposal justification and practices and found that Nalcor’s work was skilled, well founded and complying with industry practices [59].

C. How did Nalcor determine the project cost?

When Nalcor introduced the cost of the project they followed the following methodology as presented by Dr. Locke. First, they calculated that the energy produced from the 824 MW project would be 4,873 GWh.

Then they calculated the nominal capital and operating costs, Innu payments and water rentals to provide the cost that would have to be reimbursed by the sale of electricity. They assumed that this cost is 100%

equity financed with a required rate of return of 12%. They also assumed electricity rate inflation of 2% per

year. They calculated that 7.582 cents per kWh is the price that would provide a rate of return of 12% for

the energy produced which then increases at the annual inflation rate to provide the nominal price. Next,

they applied the nominal price obtained earlier to the amount of energy used in NL which starts at

approximately 2000 GWh per annum and eventually rises to 4,873 GWh. All of these calculations yielded

in the end an 8.4% rate of return on equity for the share holder (the government of Newfoundland) which

was seen as sufficiently high for the project to be approved. Since NL government at the time could borrow

at less than 5% so 5% is the implicit cost of equity the government would contribute. If Nalcor’s borrowing

rate is less than 8.4% then borrowing a portion of the capital would increase the rate of return for the share

holder [14].

P a g e 6 | 68 D. The screening process

Nalcor used a screening process to determine the most viable options regarding the island’s energy generation [12]. Nuclear, coal, solar, tidal and biomass were justifiably dismissed. Five electricity generation scenarios (besides Muskrat Falls) passed the initial screening and were analysed which include:

1. Extension of the service life of Holyrood thermal station and installation of scrubbers to reduce its pollution. This option enables the usage of cheaper fuel (no.6 oil).

2. Installation of simple cycle combustion turbines. These devices are ideal for peak generation but less effective when used for extended periods of time.

3. Installation of combined cycle combustion turbines. These devices are more expensive but more efficient for use for extended periods of time.

4. Three island hydro involved installing smaller generation in Island Pond, Round Pond and Portland Creek.

5. Wind generation, which was considered intermittent and non dispatchable.

A software called Strategist was utilized by Nalcor to study the aforementioned options allowing them to create 2 plans: the interconnected island option and isolated island option [12]. The screening process employed by Nalcor was verified by Manitoba Hydro International before Decision Gate 3. It was found out later on however (by the commission for inquiry and various other sources) that there were various problems with the methodology deployed by Nalcor [59].

The extension of Holyrood’s service life meant the province can wait till 2041 when it can start benefiting from the lower Churchill project. This option had a CPW of $233 million and was cheaper than the Isolated Island option. It was however incorrectly dismissed by Nalcor [12].

The recall block, a 300 MW power supply from Churchill Falls, provides 220 MW towards Labrador winter energy needs and the excess is resold to Hydro Quebec. Nalcor screened out this power supply as an option because the 80 MW spare capacity was not enough to replace Holyrood, which is true. However, the recall block could have played a valuable role in the generation plan even if it did not fully replace Holyrood [12].

As far as energy imports are concerned, Nalcor considered New York and New England as energy

suppliers but did not consider Quebec. Had negotiations occurred with Hydro Quebec in 2010 when it faced

a shortage in winter capacity then it is possible that a plan regarding Gull Island development could have

occurred [12].

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Natural gas, which could have been used by combustion turbines to generate electricity, was also dismissed by Nalcor despite NL having large natural gas resources which never found a market. This was questioned publicly by Dr. Stephen Bruneau, PHD and director of Industrial Outreach at MUN, who argued that producing small amounts of natural gas for domestic consumption is an option worth considering. Nalcor assumed, however, that oil and gas suppliers would not have provided the province with fair prices and so dismissed the option. The reasons why they assumed this have not been disclosed [12].

Liquefied natural gas (LNG) was also screened out (during Decision Gate 2, DG2) based on uncertainty in its price in the global market. The CPW of LNG (calculated later in 2012) was found to be competitive with Isolated Island option. Nalcor is criticized in not investing the efforts needed to obtain an accurate CPW for the LNG option such as contacting LNG suppliers seeking quotes. These screening out decisions were later viewed as unreasonable and removed from Nalcor’s credibility in their claim that they were objectively seeking the least cost option [12].

At DG3, a 10% limit was placed on the amount of wind generation that could possibly be utilized by the province to fulfill its energy needs. While the literature indicated that 10% penetration was the highest the grid can accommodate it also suggested that developments in the near future can increase this ceiling. Stan Marshal also testified that had additional hydro options been included (such as Bay d’Espoir unit 8) penetrations of more than 10% for wind energy in the Isolated Island option would have been viable as the hydro facilities can be used as pumped hydro storage which rectifies some of wind’s intermittency problems [12].

Conservation and Demand Management (CDM), which involves persuading the consumers to use less energy, should have also been seriously considered instead of being dismissed by Nalcor as too speculative.

Nalcor failed to consider CDM measures in its load forecast and as an alternative to increased generation

[12].

P a g e 8 | 68 E. Holyrood thermal generating station

Fig. 3. Holyrood Station Schematic

This station is located in the town of Holyrood near Conception Bay South. It uses 0.7% sulphur fuel and has been operational since 1969. It consists of 3 turbines totalling 490 MW of cumulative capacity. Holyrood generates 15% to 25% of the province’s electricity (3 TWh) but has the potential to generate up to 40% of the island’s electricity needs. The plant can burn up to 18,000 barrels of oil per day. Several measures have been undergone by Newfoundland Hydro to reduce the plant’s emissions which has been a significant source of GHG emissions and has incurred rising costs reaching $135/MWh in 2011. Nalcor argued that increased consumption will surpass Holyrood’s capacity and lead to the installation of new oil-fired generation by 2021. [41,48].

The Energy plan was a document issued by Newfoundland’s provincial government on September 2007

where it directed NL Hydro to consider a couple of options to address the environmental concerns regarding

Holyrood thermal power station. The 1 ^st option was to replace Holyrood’s electricity with power from the

Lower Churchill River project through the High Voltage Direct Current (HVDC) transmission line/link to

the island. The 2 ^nd option involved the use of electrostatic precipitators and scrubber in Holyrood to control

its emissions and to maximize the island’s use of wind, small hydro and energy efficiency programs so as to

lower the province’s reliance on Holyrood produced electricity. These two alternatives required substantially

differing strategies to enact which required the introduction of two different generation expansion plans to

address the near-term generation strategy until an option is selected for future generation development [10].

P a g e 9 | 68 F. Positive impacts of Muskrat Falls

As of 2019, 92% of the workforce was from local laborers, the project received the health and safety distinction award from building trades unions, the project successfully transmitted power from Labrador to Newfoundland, Upon completion, 98% of the province’s electricity will come from renewables, 3-4 million tones of CO 2 emissions will be displaced annually which is equivalent to taking 1 million cars off the road for 1 year. As of 2019, 17.5 million hours were worked without a lost time injury. Connection to the North American electricity market (through Nova Scotia) is to be established. Connection between Labrador and Newfoundland electricity grid. The project also completely eliminates the province’s reliance on Oil and so offers greater energy security [57].

G. Impact of COVID-19 Pandemic

Work on the Muskrat Falls project was suspended from March 2020 to June 2020 due to the COVID-19 pandemic. The resumption of the project came as Newfoundland began relaxing public health measures as the pandemic was relatively contained. The project resumed at a reduced workforce and productivity level which could add an additional 2-6 months delay to the already schedule overrun project. It was stated by Nalcor Energy’s CEO Stan Marshal at Nalcor’s annual general meeting in 2020 that the company expects the project will be complete by June 2021. The effects of COVID-19 also include an additional $200 million in direct costs due to added labour costs. Another $200 million can be incurred due to interest and financing charges. As Muskrat Falls is not currently profitable, the additional costs must be provided by the provincial government which is already in a financial crisis due to the fall of the oil and gas sector and the pandemic.

The final cost can surpass $13 billion according to Mr. Marshall. The 2020 blizzard had minimal effects on the muskrat Falls electricity system. The software that is used to control the 1,100 km transmission line from Labrador to Newfoundland is currently being tested [40].

III. Environmental Perspective A. Methyl mercury release

According to [4], the authors highlighted that methyl mercury (MeHg) is caused by microbial production.

It is a bio accumulative neurotoxin caused by degradation of carbon present in flooded soils of hydroelectric

plants. They stated that all proposed hydroelectric projects in Canada including Muskrat Falls are located

within 100 km of indigenous communities. Through thorough simulation of MeHg levels at the Muskrat

project the authors concluded that there will be 10 times increases in riverine MeHg levels and 1.3 to 10

times increase in locally caught species (such as fish) MeHg levels.

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Methyl mercury forms as bacteria reacts to the mercury present in water, soil, and plants through the process of methylation. Its levels increase as it moves further up in the food chain. For example, people consume fish which consume plankton which consume algae. While in the initial stages, methyl mercury is low and widespread, it is concentrated, and dangerous in the final stages (in humans). For example, Trevor Bell, a MUN geographer, stated that in fish and seals methyl mercury levels can be as high as 10 million times the levels found in water. An example of this can be found in 1950’s Japan’s Minamata Bay where more than 1000 people died and many more were sickened by seafood consumption from methyl mercury contaminated waters due to the Chisso Corporations chemical factory. Today first nations communities in Ontario continue to suffer from mercury poisoning due to Reeds Paper’s chemical factory set up in the 1960s.

It should be noted that Muskrat Falls is not a chemical plant and so won’t be dumping such high levels of mercury into the water. However, the mercury levels naturally present in the surrounding ecosystem is sufficient to cause a problem. The main concern is the increase in methyl mercury levels at Lake Melville estuary which is the Inuit’s main source of fishing and hunting. The argument (for lower methyl mercury levels) has been framed by opposers as an appeal to science-based policy [37,38].

This issue also has local precedence as the Churchill Falls project (upstream of Muskrat Falls) caused fish methyl mercury levels to increase to 10 times baseline levels which was observable more than 300 km downstream of the hydroelectric project and lasted for more than 30 years [49].

After reservoir flooding at Muskrat Falls, the level of exposure to MeHg is predicted to double causing half of women and children to surpass the dosage of MeHg recommended by the U.S. EPA. The largest exposure pre flooding is found in the Rigolet, where 24% of individuals have shown levels higher than U.S EPA’s recommended dosage. Post flooding these levels will increase to three times baseline values [4].

A main reason for higher MeHg levels in Inuit communities is the increased consumption of aquatic foods. Figure 4 shows the top 20 food sources pertaining to MeHg exposure for the Inuit population downstream of the project. The main species affected by post flooding MeHg increase are lake trout and brook trout. Lake trout and seal kidney will see over 1 μg/g MeHg concentrations and brook trout will be responsible for 30% of exposures [4].

In [5], the authors have discussed some of the effects of MeHg on humans which include: A correlation

between MeHg rich fish consumption and acute myocardial infarction, a 2x-3x increased rate of

cardiovascular death, Renal toxicity and weakened immunity. Prenatal exposure of the fetus hampers growth

and migration of neurons and poses a risk of causing irreversible damage to the development of the central

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nervous system. Infants who were subjected to high levels of MeHg in-utero were born with: Mental retardation, Seizure disorders, Cerebral palsy, Blindness, Deafness and IQ deficits.

Fig. 4. MeHg in top 20 food sources affected by flooding consumed by nearby Inuit populations.

In 2016, protesters in Halifax have voiced concern about the methyl mercury from Muskrat Falls, which

will feed Nova Scotian grids via the maritime link connection, will leak through the forest floor into

watersheds in Happy Valley Goose Bay area. The protest involved one protester going on a hunger strike. A

representative from the Inuit government of Nunatsiavut has stated that the forest and topsoil should be

completely cleared from the reservoir prior to flooding in order to reduce the flow of methyl mercury down

stream. This project has a political side to it as it negatively affects native populations who feel

underrepresented and not sufficiently consulted by the government of Newfoundland [35]. As a reaction to

increased protests (even in St. John’s), in 2016 the government of NL ordered Nalcor to remove more forest

cover at the reservoir to lower the release of methyl mercury according to Perry Trimper the environment

minister of NL at the time [36]. However this effort did not actualize as the province did not act it out for

over a year and finally declared in 2019 that the opportunity for this measure to be implemented was

unintentionally missed [49].

P a g e 12 | 68 B. Lifecycle assessment

In a comparative study between the life cycle assessments (LCA) of hydro, wind and nuclear [7] the authors found that hydro facilities with biomass decay had life cycle emissions of 15.2g CO 2eq /KWh which was higher than 12.05g CO 2eq /KWh for wind and 3.402g CO 2eq /KWh for nuclear.

The study took a comprehensive approach taking into account upstream phase, downstream phase and operation phase of the three technologies. The emissions studied were CO 2 , CH 4 , NO x , SO x and particulate matter. The environmental impacts studied were global warming, acidification, eutrophication, photochemical ozone creation and toxicity potentials.

In another study [8], researchers compiled various wind and hydro LCA studies the results showed that there was a large variation between the different studies however the upper range for wind power 55.4g CO 2eq /KWh was one third that of reservoir hydro power 152g CO 2eq /KWh (with emissions from flooded lands included). This can be seen from table I which is reproduced from [8].

TABLE I

SUMMARY OF FINDINGS FROM REFERENCE

Wind Power Reservoir Hydro Power

Number of studies 63 28

Variations in GHG emissions (g CO 2eq /KWh) 4.6-55.4 4.2-152 Cause of GHG emissions Infrastructure Inundation of land Proportion of infrastructure contribution 90-99% 56-99%

Main contributing activity Steel production Construction of dams and tunnels

C. Potential for landslides

In a recent paper [9], Bernander and L. Elfgren presented a geotechnical explanation to a stability problem

relating to the north spur dam wall of the Muskrat Falls project. The land is composed of multilayer deposits

of silty sands and sandy clays which have established the valleys and plains in the area. Some of the layers

which were formed thousands of year ago in post-glacial times are susceptible to liquefaction when their

equilibrium is disrupted. This has resulted in multiple slides along the Churchill River banks in the past. A

possible progressive failure, the most hazardous one in respect of the safety of the North Spur is landslide

development, may be triggered by the rising water pressure, when or after the dam is impounded. Such a

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slide could drive part of the North Spur ridge to slide along a failure surface sloping eastward into the deep river whirlpool downstream of Muskrat Falls.

Fig. 5. Aerial view of Muskrat Falls on September 27, 2004. The North Spur Ridge, susceptible to a possible dam breach, is located in the centre of the picture just above the falls and the Rock Knoll granite cliff.

D. Effects on adjacent structures

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a

b

Fig. 6. a) Reservoir before and after flooding, b) Surrounding geology

In a 2020 study, the authors stated that the construction of the Muskrat Falls hydroelectric dam on the lower Churchill River (40 km from the river mouth) started in 2014 establishing a 100 km ² reservoir. The area where flooding will take place is made up of highly erodible loose sandy sediments [33]. Minaskuat [34] forecasted that bank erosion from the reservoir to Happy Valley will rise significantly in the first 2 years as the shoreline rearranges to accommodate the new water level. This rise in bank erosion is predicted to cause a pulse suspended sediment downstream. The study calculated the sediment load increase of the Churchill River to lake Melville and Goose bay using a shoreline erosion potential of 5.25 m/year and assuming a 10 m bank height, shoreline of 35.5 km and bulk density of 2600 kg/m3. The result shows that the flow of suspended sediment to Goose Bay and Lake Melville would more than double (reaching 49.5 kg/year) in the 2 years after reservoir impoundment. This could lead to a reduction in phytoplankton productivity by lowering light penetration and narrowing down the euphotic zone. The increase in freshwater delivery will also decrease its residence time thereby increasing the export of primary producers. These effects can persist for nearly 20 to 50 years [34].

E. PESTLE analysis

A 2015 study [117] developed a sustainability index to assess hydroelectric projects in Newfoundland

based on a four-pillar concept of sustainability where the four pillars are social, economic, environmental

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and governance impacts. This utilizes a PESTLE (Political, Economic, Socio-Cultural, Technological, Legal and Environmental) framework to identify the appropriate variables. This index was then applied to Muskrat Falls and the result showed that the project was moderately sustainable but with a few governance issues. In the PESTLE analysis 6 criteria were analysed as the following:

Political: Political issues have played and are still playing a major role in the MF project. More than fifty years of planning, research and development clearly highlight the importance of political factors and governance issues. In this case, political issues stretched from the local communities to the provincial government, and even beyond the boundaries of the province. The estimated cost of building the hydroelectric dam increased over time and has become a political issue as the increased burden shifts onto the taxpaying voters. The imbalanced and ill-fated agreement of NL government with the government of Quebec about the Upper Churchill project made their relationship sore. Additionally, Hydro Quebec and the government of Quebec have continued to dispute the water management and sharing policies that govern the two mega hydroelectric projects. Water management and sharing is the most common problem that most countries face while constructing a hydroelectric dam. There are water sharing dispute between India and Bangladesh, China and India, Ethiopia and Egypt and many more [118]. The MF project is expected to release NL from the geographic stronghold of Quebec since the MF transmission line effectively bypasses Quebec. One positive aspect of trans-border politics is the strategic tie and cooperation of the province with Nova Scotia. The Lower Churchill project is on the verge of reshaping the politics in Newfoundland and Nova Scotia even though it has yet to produce a single watt of power. Ruling parties always stay under immense pressure both from opposition and voters to be very cautious about investment and strategic ties.

Another big political issue that has been ongoing for decades is the land dispute and the concerns for the cultural heritage of aboriginal and indigenous communities living in Labrador.

Economic: The MF project is expected to bring a revolutionary change to the oil and gas dependent (30%

of Gross domestic product; GDP) Newfoundland economy. The power industries in Canada contribute only 2.2 percent of GDP (in 2010) and account for only 0.6 percent of total Canadian employment [119]. But all of these are direct contributions. Power is the most essential factor input for all industrial products and, in this way, power supply has a huge indirect contribution to both national GDP and employment in Canada.

A 2015 estimate of Nalcor showed that the construction phases of the Muskrat Falls project will enhance the provincial income by $2.1 billion, where $700 million will be gained by project labor and businesspeople in Labrador. The project was also expected to generate 5600 person-years of direct employment in the province.

Mega projects that require huge capital investment always come with some spill-over impacts. Infrastructural

development is necessary as it supports the proper functioning of the project and transmission line

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construction processes, as well as operations and maintenance. The development of the project requires smooth communication facilities to the project site, and modern air, land and seaports, highways and other transportation infrastructures are also needed. This will also benefit the communities living in Labrador. It is expected that this infrastructure development will leave long-term socio-economic impacts in the locality including hotels and other accommodations, as well as the influx of new investments and businesses. Further, national and international companies may also expand their service to the localities. The development of the Trans Labrador Highway (TLH) already resulted in new commercial trading patterns, business expansions and tourism opportunities. These changes will raise the land property values and provide local people with employment, with the end result being that the government will receive more revenue. Presently, major business activities in Labrador are tourism related. More than 25 percent of the businesses are connected to the tourism industry. The presence of the dam and generation facilities is expected to attract more tourists each year. The communities around the project area are mostly wage employees and the project will expand employment opportunities for wage employees [117].

Social: The Muskrat Falls project brought dynamic social impacts upon the communities in Labrador.

The majority of the populations in the project area and in Labrador are aboriginal peoples. They have many

cultural heritages and resources, with different types of values: prehistoric, historic, cultural, spiritual,

natural, scientific and aesthetic. Their cultural resources are mainly archaeological, natural, burial, cultural,

spiritual and other heritage sites. Investment in the Muskrat Falls project can have both positive and negative

impacts on these cultural resources. It could either destroy them or financially benefit them by bringing in

more tourists. The impact of the project on population is uncertain. Population decline is a major issue in

Labrador and the province as a whole. Labrador experienced 13.2 percent decline in the population from

1991 to 2006 compared to 11.1 percent decline in the entire province. The impact of the project on

community health is another big concern. Primary health impacts will come from environmental pollution

due to project construction activities. Community health may also be affected indirectly through

demographic change and, specifically, through any in-migration and worker-community interactions within

the Upper Lake Melville area. Construction of both the dam and reservoir demands heavy physical work,

which may result in health hazards for workers. There is also the possibility of mercury emission, which

may pollute the water and raise mercury beyond tolerable levels in fish, thereby creating an indirect health

hazard for humans. Development of social infrastructure and services as described above may create

employment and business opportunities for local people. This may also improve social security and

education services, as well as housing and accommodation. Incremental power demand for local businesses

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and services, like consumers in Happy Valley-Goose Bay and elsewhere in Upper Lake Melville area, are expected to be met from the project without interrupting the supply [117].

Technological: The MF project is a high capital-intensive modern techno based investment project and most of the equipment for power generation and transmission are imported from different countries like France. Understandably, the unskilled and semi-skilled workers have minimum or no knowledge and expertise regarding the construction, installation, operation and maintenance of the technology. There was a shortage of skilled and knowledgeable persons meaning the project was not run efficiently since these workers were used in construction. Considering the similarity of the work, workers from the iron ore and mining sectors were employed on the project. This did not bring much efficiency. Technical institutions need to train students with modern applied technical education, so they not only work on such projects; but develop technologies to make similar undertakings more efficient. Communities in rural areas usually do not like drastic changes and the NL province consists mostly of rural areas. In some cases, the rural people of NL are scared of the changes that are brought about by dynamic socio-economic and environmental impacts of such technological installations. Also, people in these communities were not well-informed about the pros and cons of this project [117].

Environmental: There are mixed opinions and research findings about the scale of environmental effects resulting from a hydroelectric dam and a reservoir. Hydroelectric energy is a renewable energy. It is also one of the cleanest sources of energy. Nonetheless, the construction stage of these projects causes greenhouse gas (GHG) emission and air pollution. The construction of the plant requires the clear-cutting of forest, as well as the demolition of hills and elevated regions. As a result, GHGs like CO 2 and CH 4 are emitted from the decay of organic matter on the forest floor. The remaining organic matter is either transported through wind or surface runoff to the Churchill River, resulting in both air and water pollution. Compared to a fossil fuel power plant, a hydroelectric project emits less GHGs. Counteraction activities, such as site preparation and the construction of site buildings (clearing, grubbing and blasting), excavation for and installation of generation components, concrete production, vehicular traffic onsite, quarrying and borrowing, as well as transportation and road maintenance pollute the surrounding air. Pollutants released in this way are PM, NO X

and SO 2 . They can have adverse environmental effects on the atmospheric environment. Another potential

source of environmental impact is the construction of the transmission lines. This project can cause problems

both for the aquatic and the terrestrial environments. The transmission line passes under the ocean, which

may hamper the normal activities of fish populations. The bulk of the overland transmission system located

in NL can cause a decline in vulnerable species like caribou. Aquatic species can also be affected by the

release of mercury into the Churchill River. The aboriginal group Innu reported that the Churchill Falls

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hydroelectric project affected how fish tasted and that they were told not to eat too many fish from the Smallwood Reservoir (Innu Nation Hydro Community Consultation Team 2000). Relevant literature has found that hydroelectric dams have less effect on the magnitude of floods as well as their recurrence intervals.

In USA, the estimated reduction in median annual flood for large rivers averages 29%, for medium rivers 15% and for small rivers 7% because of hydroelectric dams. Another concern of such project is siltation and drying up of river due to a dam. Dam construction causes upstream sedimentation and erosion in the downstream. Modern hydroelectric generation technology largely minimizes such environmental impacts [117, 120].

Legal: The NL government and other project stakeholders had to face various legal issues both internal and external (with other provinces). The efficient operation of the MF project depends on the efficient operation of the Upper Churchill reservoir storage and generation station. Well-coordinated operation is required between these two adjacent projects mainly during the spring season. Coordinated effort will save energy as well as avoid waste. The upstream storage and generation project is legally bound to serve Hydro Quebec under the agreement signed in 1969 that will expire in 2041. The NL government went on with the construction work relying on the provincial Water Management Agreement established in 2010. Still there exist legal disputes with Hydro Quebec about the use and control of the Upper Churchill reservoir and generation assets for the MF project. Emera Inc. and Nalcor Energy have signed the final legal agreements about governing the MF power project but pricing of electricity may cause problems and legal disputes in the future [117].

Another concern is that the province of NL may not have a proper renewable energy policy. The

government published an energy sector development plan in 2007 (Energy Plan, 2007). Proper policy

guidelines for renewable energy development and coordination among all relevant policies to ensure the

sustainability of the sector are needed. Lack of integration of the renewable energy sector in existing policies

can leave some important issues undetected and unaddressed. This may result in serious harm to humans and

the environment. The environmental assessment that was done by a review panel appointed by NL

government and Environment Canada was not directed to take a sustainable approach. According to Doelle

(2012) “The panel was hampered in its efforts by lack of clarity in its mandate and by lack of information to

implement a full sustainability assessment. The end result was a poor sustainability assessment framework

for government decision makers.” Good and effective governance is neither an automatic process nor a

problem free process. It is shaped by traditions, cultures, and the social locations of all parties. It is essential

to continue the path of devolution and ensure participatory governance, that will obtain the best outcome for

the community, province and the country. In a 2017 study, the authors surveyed renewable energy experts

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about the lack of development of wind energy in Newfoundland and found that 71% of those surveyed agreed that the main barrier was political structures and policies [64]. Using the PESTLE analysis, a holistic picture of the project is obtained which involves all the necessary parameters for measuring the sustainability of the overall project [117]

IV. Economic Perspective A. Cost and schedule overruns

The Muskrat Falls project has notoriously experienced cost and schedule overruns. According to [6]

(which is the response to the inquiry made by the commission overseeing the Muskrat Falls project), Hydro- electric dam projects are high-risk projects with an average cost overrun of +96% and an average schedule overrun of +44%.

The cost and schedule overrun potential of hydro project is very large only exceeded by nuclear power which has a cost overrun of +122%. Alternatively, wind power has a cost overrun of +13% and schedule overrun of +22%. The frequency of cost overruns for wind is 64%, 13% lower than that of hydro, and the frequency of schedule overruns is 16% lower than the 80% chance of schedule overruns for hydroelectric dams as illustrated in table II [6].

70% of the Muskrat Falls cost overrun was due to construction contracts values exceeding the estimates as well as changes in design or order. These factors resulted from an underestimation of labor rates and amount of time required by contractors to undergo the work. The estimates also neglected to include poor geotechnical conditions, bad weather and complex terrain [13].

TABLE II

HYDRO-ELECTRIC DAM PROJECTS COMPARED TO ENERGY PROJECTS Mean Cost

Overrun

Freq. of Cost overrun

Schedule Overrun

Freq. of Schedule Overrun

Size of Sample

Hydro +96% 77% +44% 80% 274

Wind +13% 64% +22% 64% 53

Solar +1% 41% 0% 22% 39

Thermal +31% 59% +36% 76% 124

Transmission +8% 40% +8% 12% 50

Nuclear +122% 97% +65% 93% 191

P a g e 20 | 68 B. Hiding Hand

How desirable a project is, is determined by its economic efficiency and net contribution to social welfare compared with its alternatives. If mega projects are not assessed correctly there is room for them to become

“planning disasters”. Problems associated with such projects include mismatch between demand and supply, adverse environmental impacts as well as cost and schedule overruns [15]. In [16], the authors assessed 2062 projects and concluded that 78% of those cases suffered from a hiding hand issue which, according to the authors, blinds unreasonably optimistic planners to both the unexpectedly lower net benefits and higher costs than estimated. The hiding hand principle was first defined by Hirschman as situations where the project planners underestimate the costs and overestimate the benefits in order to get the project built [17].

Cost benefit analysis (CBA) is an integral part of federal decision making for public projects. It estimates the present value of all benefits and all costs inherent in a project and decide whether the project is of merit or not. It assists on deciding on project size and choosing between alternatives [18]. The hiding hand comes into play by twisting the results of the CBA. For energy generation projects there are four main factors that influence the CBA which are: direct benefits, indirect impacts on the employment market, direct costs, and environmental impacts [58,61].

Direct benefits

Direct benefit is the quantity of electricity that can be consumed during the operation phase. Since excess electricity produced cannot be efficiently stored, accurate load forecasting is vital. There is evidence suggesting that the direct benefits were exaggerated due to an overstated load forecast. GDP growth rate and demographics might have been exaggerated by Nalcor [58].

In 2011, Conference board of Canada predicted that between 2011 and 2035 NL would see a GDP growth rate of 0.8% (Nalcor assumed 0.9%), population would decline to 473,478 (Nalcor assumed 507,000) and housing starts would drop from 3,700 in 2011 to 490 in 2035 (Nalcor assumed 2135 housing starts in 2029) [19].

The load forecasting model also disregarded energy efficiency and energy conservation programs which

can reduce the province’s long-term energy needs. In 2019, Carleton University’s efficiency scoreboard

estimated that Newfoundland’s energy efficiency was 0.47% annual incremental savings as a percentage of

domestic sales while Ontario’s was 1.4% and certain U.S states (with aggressive electricity savings

programs) like Vermont had savings of 3% per year [20]. The scoreboard defined electricity savings as

having the ability to avoid expensive electricity generation options, increase reliability and reduce risks. For

the customer electricity savings means reduced energy bills, improvement in health and comfort of home

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environment and increased house durability. For society, the benefits are a reduction in GHG emissions and other negative environmental impacts and a stimulation of the local economy in implementing energy conservation technology [20]. This information is not new and was available at the time of the project screening such as a 2008 study confirming the existence of substantial energy conservation potential in the industrial and residential sectors of Newfoundland and Labrador [21].

In the 2020 scoreboard, Newfoundland came in the 9 ^th place (second to last followed by Saskatchewan) which is an upward movement of one rank from the last years scoreboard where NL was dead last. The 2020 scoreboard highlighted that NL faces substantial energy challenges due to cost overruns of Muskrat Falls. A relevant analysis showed that electrification of heat and transportation to be the most valuable mitigation opportunity as it reduces provincial oil expenditure. The province is preparing to update its building code to increase energy efficiency and commenced rolling out energy vehicle charging network and fuel switching of public buildings from fossil fuels to electricity (supported by the federal low carbon economy fund). The scoreboard suggests NL has an energy poverty problem where more than 38% of the population spend more than 6% of their after tax income on energy which can be reduced if the houses were more energy efficient [121].

It is possible that if the load forecast was different, Muskrat Falls would not have been pursued and instead the differed Churchill Falls option would have been optimal. This option involved the upgrade of existing thermal generation until 2041 at which point the supply contract with Hydro Quebec would expire and Newfoundland can access Churchill Falls’ electricity production. To pursue this option would have meant no sizable development of new power generation projects but would also imply higher GHG emissions over that period. This potentiality was verified by Nova Scotia Utility and the Review Board in 2013 which stated that there would be no shortage of energy in NL when the Churchill Falls agreement expires in 2041 [22].

Indirect impacts on the employment market

Multiplier effects are the second-round impacts that public projects will have on the market by requiring employment and making project expenditure [23]. Large scale energy projects could lead to competition over resources in the labor market and by diverting skilled employment to the project can lead to skill shortage in the private sector where less skilled workers will have to be trained [24]. This negative impact will be on highly productive trade sectors. A positive impact that could developed in such a case is on the lower productive sectors where vacancies can be filled by unemployed people thus reducing unemployment.

The net effect can be either positive or negative depending on the conditions of the individual economy. To

estimate the aforementioned impacts a model needs to include the unemployment statistics of the economy,

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costs of additional training and the impact on the productivity of the private sector. This was not included in the Muskrat Falls CBA. If it had been included, then Gull Island might have been more favorable as it was the option considered by every Newfoundland premier for 40 years until Hydro Quebec obstructed their plans [25]. The fall in negotiations over Gull Island occurred due to an inability to determine how the project’s benefits will be divided between NL and Quebec. According to Hydro Quebec, Quebec had more hydroelectric electricity than it is able to sell with a surplus that ensures it is able to meet its electricity needs until 2026 with no additional projects [26]. After 2026, negotiations regarding Gull Island could have played differently. The inaccuracy in this category (employment benefits and export potential) lead to Muskrat Falls being preferred to Gull Island. Newfoundland might have been able to meet its short-term electricity shortage with small scale power generation and to defer any major hydroelectric projects until 2026 when Quebec’s surplus ends opening up the opportunity for export [58].

Direct costs

Direct costs include facility and transmission lines construction costs, yearly O&M costs, contingency cost and dam decommissioning cost at the end of the project lifetime. The contingency cost covers risks and uncertainties which are unknown but likely to occur. It is perhaps the most contentious cost estimate. For accurate direct cost estimation, project planners must assess the whole scope of the work including all elements and activities and create the proper contingency [27].

It is likely that Nalcor underestimated funding for some of the risk types such as strategic and tactical risk. A detailed report by Grant Thornton [28] highlighted that cost overruns resulting from an under appreciation of labor rates and hours necessary to fulfill the work required and neglection of issues associated with unfavorable geotechnical conditions, adverse weather and complex topography was an oversight.

Strategic risk funding was calculated by Nalcor ($500 million) but was not included in the CPW formula.

The definition of strategic risks are those risks that are outside the control of the project team. For example, schedule risks, resource competition and bad weather or remote location performance risks [29].

Tactical contingency, which includes project definition, scope omission, construction methodology, performance factors, and price was also undervalued by Nalcor. The tactical risk that resulted in Muskrat Falls overrun was the increase in the cost of the contract value as Nalcor misjudged the labor rate and the contractors’ expected performance in completing tasks (number of hours needed). Nalcor chose a P-factor of 50, which means that there is a 50% chance of cost overruns, to estimate tactical contingency resulting in

$368 million contingency budget [11]. However, a 2014 study showed that hydroelectric dam project cost

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overrun is 96% higher than estimated costs [30]. If Nalcor had selected P90 instead of P50 their capital cost estimate would have risen by $767 million [29].

Environmental impacts

Hydro electric projects can involve substantial environmental impacts by interacting with land usage, homes and natural habitats in the area of the dam. The dam can cause damage to local vegetation and wildlife by obstructing fish migration and changing the water’s flow and temperature thus affecting the number of fishes caught and income of fisheries in the area. Hydro reservoirs can also cause people to have to relocate and archaeological and cultural sites to be submerged. Hydro projects therefore should have resettlement costs for the people affected and income restoration costs to be provided to the affected people as temporary income, cost of training and identification of employment opportunities.

Nalcor did include environmental costs in their analysis but the extent of the impact seems to have been understated. Originally, Nalcor allocated $27.98 million for fish rehabilitation and resettlement cost for those affected (mostly of the aboriginal community). In 2016 the locals protested, stopping site work and raising concerns around the projects environmental and ecological protection measures [31]. In 2017, Nalcor admitted having underestimated the environmental cost and increased its environmental budget by $9 million per year [32].

C. Energy pricing

In 2012, Dr. Jim Feehan argued that efficient electricity pricing and conservation measures would make

Muskrat Falls unnecessary where any increase in demand growth can be met by smaller renewable projects

on the island at a much lower risk [42]. He said that the provincial government should reform its pricing

regime which he saw as implicitly encouraging inappropriate prices and therefore higher consumption. An

important economic principle is that efficient resource allocation mandates the price of a commodity

(electricity) be equal to the cost of producing an additional unit of it. This cost would be higher than the

average cost of production utilized by Newfoundland’s public utilities board. This principle suggests that

variable prices are needed to decrease consumption. These prices would reflect seasonal and daily peak

demands thus resulting in efficiency. For example, in 2011, consumers were paying $105/MWh of electricity

while Holyrood was at a minimum incurring $135/MWh in generation costs. If the price of electricity was

to increase, the professor argues, then people would consume less. During summer, consumption is much

lower and can be met by NL hydro resources (those in existence in 2011). If time of day prices were used,

then people would shift their loads from peak hours to cheaper hours thus eliminating the need for additional

generation. He concluded by supporting the Isolated Island option as he expected that Nalcor’s consumption

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growth projections could be 100% higher than actual consumption growth if prices were better regulated [48].

Most notably Dr. Feehan argued that a 20% increase in price would lead to a 5% decrease in consumption which would cut Holyrood’s production by one third which cuts back on pollution and delays the need for additional generation. However, Dr. Locke agreed that yes an increase in price would lead to consumption decrease since the demand curve for electricity is negatively sloping (demand elasticity is less than infinite) but Professor Locke asked how much do prices need to change and whether the adjustment costs are less than the costs of installing new capacity. He argued that you can keep raising prices until the problem disappears but that would negatively affect the most vulnerable of taxpayers and therefore might have social welfare implications. Dr. Locke extrapolated Dr. Feehan’s argument and showed that it implies that by 2041 to cut forecasted demand by another 20%, prices would have to be 80% higher in order to maintain Holyrood as 10% of the province’s electricity generation mix. Dr. Locke further argued that an annual rate stabilization adjustment plan was adopted in 1985 to protect consumers against fluctuating oil prices during the year.

Such as rates increasing by 7% in July 2011 because oil prices increased from $84/bbl to $103/bbl. Dr. Locke

concluded by noting that prior to 1985 the price of electricity coming from Holyrood was sometimes twice

or thrice higher in winter months than what it was during the rest of the year. This was affecting families at

their most vulnerable and led to mass demonstrations [48,14].

P a g e 25 | 68 D. International market for Canadian electricity

Fig. 7. Canada's International Electricity Market

In 2019, Canada exported 60.4 TWh of electricity (around 10% of its generation), mostly to the U.S., at a price rate of 40.71 $/MWh making the value of the exports $2.5 billion. Typically, provinces with significant hydro electric generation (such as Quebec and Ontario) exported the highest volumes with their highest export years coinciding with the highest precipitation years. Electricity imports reached a 20 year low in 2015 at 8.7 TWh while in 2019 it was 13.4 TWh. The reason some provinces choose to import is that it is seen as less costly than building extra capacity that would go unused during nonpeak times. Some Canadian provinces actually have a better capacity for electricity exchange with American states (along the north-south interconnection) than with other Canadian provinces. Electricity pricing is usually higher in U.S markets than in Canadian ones [50].

Figure 7 shows the flow of gross electricity exports from the most notable provinces of Canada to the

three U.S regions which are the East, the Midwest and the West. The East region is made up of three smaller

regions which are the Pennsylvania-New Jersey-Maryland Interconnection (PJM), The New York

Independent System Operator (NYISO) and the Independent System Operator of New England (ISO-NE)